But when a project is too risky, or too important to be handled by nonexperts, many finance chiefs say they won’t hesitate to buy what they need. Jack Judd, CFO of data storage provider Compellent, says he never considered using internal staff to organize tax records and plot tax strategy as the New York Stock Exchange–traded company approaches profitability. That approach would have been “very impractical” given that his small staff lacks a tax expert, and could have resulted in lost tax savings if the job wasn’t done right, he says.
Likewise, Sentinel Group CFO Ryan Ziemann hired IBM (and its software) to help amplify the company’s ability to detect fraud in medical claims, its main business line. “We theoretically could have developed this in-house, but it would have taken years of commitment and resources. The value lies in getting deep knowledge and expertise, plus avoiding pitfalls” that can be costly in themselves, says Ziemann.
Finding the right consultant is decision number two, and arguably the most difficult one. Many CFOs say they rely primarily on references from their colleagues to identify, and then interview, three or four firms. Then they contact more-formal references as they narrow down the process. Doing this well takes no little effort, however. ModusLink Global Solutions CFO Steve Crane says he always does reference checks to make sure that a consultant has some experience, but he also always worries about getting overly optimistic reports from company-provided sources. To help cut to the chase and uncover any glitches that may have occurred, Crane likes to ask: “What did you learn from the project that you’d want to do differently next time?”
A Piece at a Time
Happily, the consequences of hiring the wrong consultant are smaller than ever, as most projects these days are structured into discrete phases so that each part is, in a sense, a trial run. “Put off that long-term commitment as long as possible, and at least until you’ve seen the results of the upfront work,” advises Ziemann. He says it is particularly important to push back when firms ask for upfront fees or the promise of more work if initial milestones are met, since you may decide along the way that “even if they met their milestones, it was more pain than it was worth.”
Structuring a consulting project into phases is the approach CFO Karen Cambray is taking at Zeemote, a small private company that manufactures and distributes gaming controllers for cell phones. Zeemote was in the process of readying products for sale in Europe when Cambray joined in September 2008, and she wanted to make sure the legal aspects were addressed properly. While she “could have spent a lot of time researching and networking” to get the answers, she decided she was safer using outside help and hired High Street Partners. While there was not, in fact, much wiggle room on the rate, Cambray kept a lid on costs by initially hiring the consultancy only to write a white paper on the pros and cons of setting up an office in various countries. Then, satisfied with that, she hired High Street to help with the administrative work of registering in the United Kingdom, the country she chose.